Incorporating dynamic pricinginto a hotel program once was a blasphemous notion to most travel buyers, but the pricing model--floating rates based on a discount off the published best available rate--is finding more acceptance than in the past due to the rapid decline in room rates.
This negotiating season has prompted more interest in dynamic pricing, but buyers are seeking a hybrid model as opposed to a straight dynamic price agreement, according to vice president of BCD Travel consultancy Advito Bob Brindley. In contracting a percent off the best available rate along with a negotiated rate cap, both buyers and suppliers can meet halfway, he said.
"The benefit of this is that it allows the hotels to be responsive to market changes, so if the rates are going down you don't necessarily have to go through the hassle of renegotiating during the season," Brindley said. "Instead of it becoming the Wild West and the travelers booking wherever they want to book, the preferred hotels would be able to remain price competitive and the clients benefit by still getting a discount throughout the year."
AllianceBernstein global travel manager Claudia Hurtado, who presently uses her corporate negotiated rates as caps and instructs employees and travel management companies to book the lowest available rate of the day, said a hybrid model could be considered for 2010. If current rates are carried over with a dynamic pricing agreement in the 2010 contract--taking into consideration market conditions--she said then both buyer and supplier will be less "stressed" next year, pointing to the potential of a shorter negotiation process.
Best Western managing director of worldwide sales Wendy Ferrill said many clients are offered a hybrid model if they are willing to contract a negotiated number of rooms in their preferred programs.
"This model has enabled us to move more share from accounts because the customer likes the idea of knowing that they're going to get the best rate through Best Western," Ferrill said. "They want to be assured that they are getting the best prices out there, and they don't want their travelers to be able to go on one of the third-party Web sites and find a better price."
American Express Business Travel introduced a new program called Complete Suite to shift medium-size and smaller accounts to a dynamic pricing model by offering them "significant discounts" off the best available rate, said Frank Schnur, vice president of American Express Global Advisory Services.
Schnur said that traditional dynamic pricing models are being used more regularly, but a hybrid solution is seen in very few circumstances.
"That solution is not a widespread situation; it is something that works and is attractive to corporate buyers because they are protected in the case of a major upswing in demand," he said. "The hotels are more open to it in the last six to 12 months than they have been in the past, definitely."
Hybrid Solution Not Welcomed By All
Hilton Hotels Corp. vice president of business travel sales and strategic partnership accounts Denise Lodrige-Kover said this type of agreement would hardly ever be considered at Hilton.
"What we are doing is offering you an opportunity to buy even lower rates, but that is a win for the customer, not necessarily a win for the hotel company because when we do start selling higher rates, what benefit do we get?" asked Lodrige-Kover. "The way our dynamic pricing model works is that it takes all seasons into account."
With the stability of the economic market still in question, InterContinental Hotels Group has been vocal about encouraging buyers to adopt a traditional dynamic pricing model as they enter into the 2010 rate negotiation season. IHG "will be proactively approaching preferred accounts [in Asia-Pacific] over the coming weeks to invite them" to "embrace" dynamic pricing, according to a statement released by IHG.
"Corporate travel managers should feel confident they have access to the best possible rates in our hotels. This model guarantees that they will pay less than any other unrestricted rates in our hotels, every day of the year," according to Gary Rosen, vice president, sales and marketing for IHG Asia and Pacific. "Put simply, this model will help travel managers reduce costs when staying at our hotels. It also provides greater booking flexibility by offering greater access to each hotel's full room inventory and removing any blackout dates that may be built into contracted request for proposal rates, makes it easier for corporate travel managers to track, as well as being a responsible business practice."
IHG declined to make available an executive to answer questions about the implications of its campaign to steer more corporate accounts toward dynamic pricing. It's not clear whether the company plans to make a push in other regions as well.
"Right now, dynamic pricing is a great option, but what about in two years?" Hurtado asked. "If corporate rates are not competitive, there is a problem. But you can't say you want dynamic pricing today and not tomorrow."
Others say they still don't want it today.
"It is difficult enough dealing with properties that had seasonal rates, but with this program it is going to be worse because you conceivably have two people staying at the same property, at the same time for the same company paying entirely different rates," said Mark Vilcsek, senior purchasing manager of travel services for National Semiconductor Corp. "How do you control that even from the back end in monitoring expense reports?"
According to Hughes Network Systems senior corporate travel manager Ron Tiu, "Dynamic pricing is tilted towards the hotel. The hotel not only controls pricing but also controls room inventory and minimum/maximum stay (which is yield management). A hotel can easily lock out a negotiated room rate by closing out a room category or instituting a minimum stay over or arrival restrictions."
New CWT Data Shows Most Opposed
Implementing a dynamic pricing model juggles too many variables, some would argue, but according to Carlson Wagonlit Travel, 40 percent of 93 travel managers polled in August 2008 by CWT expect to increase the number of dynamic pricing deals in their portfolios, compared with 56 percent who said it will remain the same.
In some instances, companies that had dynamic pricing in place received similar savings compared with accounts with fixed rates. CWT compared one company with 12 property-level dynamic pricing agreements with companies with flat rate agreements and found that from January 2005 to August 2008, the company with the dynamic pricing agreements paid eight percentage points lower than those without.
Although these results and the down market may appear convincing, companies are at risk of the tide turning against them. When the market swings up again, there is an eminent fear that rates could skyrocket and corporations will pay more per night than if they had a flat rate.
CWT's research shows that 61 percent of 71 travel managers said hotels offered them a dynamic pricing deal, but 68 percent said they refused the model because there was no way to monitor the prices and 61 percent said they were fearful that the average room night would have increased.
"The issue is that the corporate doesn't have any control and there are no guarantees," said Margaret Bowler, global director of hotel relations for Hogg Robinson Group. "The problem is that there are still busy days; that percentage-off rate would be off a much higher best available rate, which means that they would be paying loads more."
"As an industry, we should try and figure out the dynamic pricing [model] and figure out how to provide the data required so that companies can calculate their savings," said Schnur, adding that since hotels' rates are not as visible to buyers, there is more uncertainty as to what is the best rate possible.